Mechanism for Enforcement

Article excerpt

IT has often been said that we have far too many laws and regulations. In fact, our laws and regulations are pretty good. But our enforcement of them is pretty bad, and this has been our problem.

When it comes to corporate governance reforms, the major challenge does not lie in passing new laws or revising those we already have on our books. Rather, it is in setting up effective and truly functioning mechanisms for enforcement. But in trying to do so, we come up face to face with the problem of weak institutions and a set of legal practices, which strangle some of our institutions.

The obvious priority is to strengthen our institutions and reform those legal practices, which render those institutions weak and ineffective in enforcing laws and regulations. But this is easier said than done.

One way out is the practice of "name and shame." This calls for transparent reporting and causing such reports to be made public. We are already doing this with respect to selected information, such as the level of NPL and NPA and the capital adequacy ratio of banks. The fact that such items must be reported to the BSP and to the general public does have an influence on how banks behave. If a bank, for instance, stands in danger of falling below the 10 percent capital adequacy ratio, then it goes out of its way to ensure that it fills in the gap. It can not stand the damage to its reputation that can arise from failing to meet the 10 percent minimum for that ratio.

In the foreseeable future, observance of proper corporate governance practices can also be made public. A mechanism for doing this must be set up. A template needs to be formulated based on the existing BSP rules that have already been issued. …